What are Trustees and What Do They Do?

Trustees are those individuals (family members, attorney, or CPA for example) or entities (such as a bank trust department) named in a trust agreement to administer the trust. Trustees are required to manage and invest trust property and to distribute the trust property to certain individuals (the beneficiaries) based upon the instructions contained in the trust. Because trusts often last for years or even decades, a well-designed and drafted living trust agreement should include different trustees for different phases of your life, and the lives of your beneficiaries.

In a typical revocable living trust, you will serve as your own Trustee as long as you remain alive and well. When a joint living trust is used (a trust created by both), the couple will usually serve as co-trustees of the trust while they are both alive and well. When each spouse has their own trust, it is customary that both spouses will serve as co-trustees of each spouse’s individual living trust.

Because of longer life spans and medical advances, more people will suffer periods of disability prior to death; requiring the assistance of others to manage the trust and its assets. One or more Disability Trustees should be named in the trust document to take care of your personal affairs and assets in the event of disability or mental incapacity. It is critical that the trust document include detailed instructions for the care of both you and your loved ones in the event you become disabled.

The trust should specifically state who is a permitted trust beneficiary during your disability, and whether there is any priority for distributions (e.g., “provide for me, then my spouse, then my children, in that order of priority”). If you are using a gifting program to reduce the size of your estate, you may want that to continue during a period of disability. But a Trustee can do that only if the trust includes those instructions.

You will also name one or more Death Trustees who will assume management of the trust upon your death. The death trustees are responsible for all phases of trust administration, including identifying assets, working with professional advisors (e.g., attorney, accountant and financial advisor) to prepare tax returns, and distributing the trust assets to the named beneficiaries. If assets are to remain in trust for one or more beneficiaries, the death trustees may be appointed as trustees of the beneficiary’s trust share, or other trustees may be named for that role.

If you create a “protective trust” for a child that will be funded at your death, or the death of you and your spouse if you are married, your attorney may suggest that a responsible adult child serve as a trustee of their own trust share along with a “friendly” co-trustee. This technique would allow for your child to have access to their trust assets for their needs, but can help insulate those assets against attacks by your child’s creditors, including a divorcing spouse.

A Trustee has the legal duty to carry out the directions set forth in your trust. As a fiduciary, the Trustee cannot derive personal benefit from the assets with which he or she is entrusted. If the Trustee does not follow the directions set forth in your trust, they can be subject to personal liability. Some of the duties of the Trustee include taking a complete inventory of the assets when they begin to act as Trustee; obtaining a tax identification number for the trust; determining values of the assets in the trust; investing the money in the trust for the benefit of the beneficiaries; paying expenses of the trust; preparing accountings for the beneficiaries of the trust; preparing tax returns for the trust; and distributing the assets in accordance with the terms of the trust.